Is Alibaba, Baidu and Tencent Competition Good for Digital Ad Spend in China?

Digital ad expenditures in China will total $18.03 billion in 2014

Digital ad spending will account for roughly one-third of total media ad investment in China in 2014, according to a new eMarketer report, “China Digital Ad Trends: Multiple Forces Driving Growth.” Over the next several years, that proportion is set to climb even higher as digital ad spending gains outpace China’s overall ad spending growth throughout our forecast period.

A number of forces are driving increased digital ad spending in China such as the growth of ecommerce, mergers and acquisitions, and a new focus on return on investment.

Ecommerce in China is booming, and there is a massive social media aspect to the ecommerce revolution—which is driving heightened merger and acquisition activity as the country’s leading internet companies scramble to obtain access to the mobile and social channels that feed ecommerce sites. That competition is in turn likely to accelerate ad spending in an attempt to drive traffic to these new, newly competitive channels.

“It’s funny because the BAT—Baidu, Alibaba and Tencent—all started out [with] unique niches; their marketplaces, if you will,” said Brent Cohen, managing director and founder of Beijing-based Asia Media Services Ltd. “In the last couple years they have each kind of gone after the other’s core markets, all of them making sure that they have long-term monetization opportunities.”

One of the most important strategic investments of 2013 was Alibaba’s April purchase of an 18% stake in Sina Weibo for $586 million. Other examples include Tencent’s April 2014 acquisition of a 15% share of ecommerce platform JD.com for nearly $215 million and Baidu’s $1.9 billion purchase of China’s leading third-party app store, 91 Wireless, in July 2013.

For brands, the rise of social and ecommerce presents a unique challenge, one that some argue requires a much more holistic approach to influencing the customer journey than in other markets.

“Baidu, Alibaba and Tencent all require video to reach a high concentration of people and to keep consumers’ attention,” said Andy Wang, North Region deputy general manager at Neo@Ogilvy. “They all need social media to keep consumers’ stickiness. At the same time, they all need ecommerce to complete consumer purchases. Internet finance is also an important part that has linked consumers’ bankcards online to help them manage their personal finances. All these are built around the consumer’s needs and lifestyles, and not for the advertiser. This has prompted a shift to a more holistic and focused strategy that requires everything from the headline to planning the customer journey.”

Heightened merger and acquisition activity across the ecommerce, social and mobile landscape will drive advertising spend as an increasing number of consumers gain access to a more diverse range of products and payment options. Competition and consolidation will also broaden and simplify advertisers’ spending choices as these discrete ecosystems evolve, reducing fragmentation as activity becomes more concentrated across platforms and services owned by the big three firms.

Get more on this topic with the full eMarketer report, “China Digital Ad Trends: Multiple Forces Driving Growth.”

This report answers these key questions:

How fast is digital ad spending in China growing, and what is driving the growth?